UK mortgage approvals hit six-month high as rates ease

London: UK Mortgage approvals climbed to the highest level in six months in a further sign that falling borrowing costs are bringing buyers back to the housing market.

Banks and building societies authorised 50,459 home loans in December, up from 49,313 the previous month, the Bank of England said on Tuesday (Jan 30). At the same time, consumers took out an extra £1.2 billion (S$2.03 billion) in unsecured debt. Both figures were slightly below the expectations of economists.

The findings add to evidence that the housing market is turning a corner after avoiding a crash last year that had been widely predicted.

Cheaper mortgages fuelled by a price war among lenders is bringing buyers off the sidelines, while moderating inflation is boosting consumer confidence.

The effective’ interest rate – the actual interest paid – on newly drawn mortgages fell by 6 basis points to 5.28 per cent in December, the first drop since November 2021, the BOE said. According to Moneyfacts, the average 2-year fixed mortgage rate has fallen to 5.18 per cent, down from almost 7 per cent last summer but still well above levels in 2022.

Lenders including Nationwide Building Society and HSBC expect prices to stabilise in 2024 as financial markets bet on the BOE cutting interest rates from the middle of the year.

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A major headwind facing the housing market is the scale of mortgage refinancing that has yet to take place. Around 1.5 million borrowers face an extra £1,800 annual bill on average this year as their fixed-rate deals expire, according to the Resolution Foundation think tank.